Explained: What is the difference between active and passive mutual funds?
mutual funds, an investor has to decide whether to choose active or passive funds. Both types of funds offer different approaches to managing investments, and having an understanding of their differences can help an investor make an informed choice that aligns with your financial goals.
What are Active Funds?
Active funds are mutual funds managed by professional fund managers who actively make decisions about which stocks, bonds, or other securities to buy or sell. The goal of an active fund is to outperform a specific benchmark index through strategic investments and market timing.
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View Details» <div data-placement=«Mid Article Thumbnails» data-target_type=«mix» data-mode=«thumbnails-mid» style=«min-height:400px; margin-bottom:12px;» class=«wdt-taboola» id=«taboola-mid-article-thumbnails-112585610»>In other words, in active funds the fund manager has the flexibility to choose the investment portfolio, within the broad parameters of the investment objective of the scheme. Since this increases the role of the fund manager, the expenses for running the fund turn out to be higher. Investors expect actively managed funds to perform better than the market.
Key characteristics of active funds:
- Professional management: Active funds are managed by experienced fund managers who use research, analysis, and market insights to make investment decisions.
- Higher fees: Due to the hands-on approach of managing the portfolio, active funds typically have higher management fees and expense ratios compared to passive funds.
- Potential for outperformance: The primary objective of active funds is to beat the market or a benchmark index. If the
